Law firm panel

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“Within a couple of millennia, bankers in many parts of the franchise were doing little from dawn to dusk other than taking care of legal advisors. It wasn’t easy. The lawyers demanded a lot. They didn’t like personal responsibility for anything, so the bankers broke their backs, forging them disclaimers and liability caps and waivers. They didn’t like being categorical, so the bankers suffered pages and pages of assumptions, conditions and qualifications. They didn’t like sharing their fees with other firms, so operations teams laboured long days under the scorching sun building impregnable barriers to entry which they called “panels” within which their delicate “captive” law firms could safely conjure up their intricate gossamer figurines without risk to their livelihoods.

The bankers were not evolved for this. They had long adapted to gouging sovereign wealth funds, ploughing customer deposits into casino banking and ripping faces from defenceless end-users: they was not designed to tamely agreeing terms of engagement and carrying water for high-paid dilettantes. Banker spines and brass necks paid the price.

Moreover, their lawyers were so confusing and their work products so baffling that the bankers had to co-opt thousands of extra lawyers to work inside their businesses, who could keep the crops and fields of lawyers happy, throwing out fresh instructions on any matter across which they could contrive to cast doubt. This completely, and permanently, changed the bankers’ way of life.

Banks did not domesticate law firms. Law firms domesticated banks.”

—Noah Yuval Harari, Legio Cadabra: A Brief History of The Magic Circle

Law firm panel
lɔː fɜːm ˈpænᵊl (n.)
Proof that, far from being a seething pit of apex predation, the financial services industry is no more than an extended phenotype — a gruesome, metastasised spandrel illuminating the space between adjacent domes of legal excellence — that exists for the pleasure and enrichment of those saintly white-shoed attorneys who grace the serene frescoes overhead.

“The involvement of S&C, which represents the FTX estate, has been controversial from the start. S&C lawyers had assisted the company in the chaotic days leading up to its bankruptcy filing — including preparing its petition and appointing Ray, a restructuring expert its lawyers knew well, as its new chief executive. A former S&C partner, Ryne Miller, was FTX US’s general counsel.”

The image of investment banks as docile, harnessed sauropods, munching stupidly away in the unwitting service of a higher caste of pan-dimensional superbeings seems far-fetched. But so does the idea of wheat bending the staggering intellect of humankind towards its merest biological ends, but that is what evolutionists would have us believe.

Could these masters of the universe really be so feckless as to be in the thrall of legal eagles?

Do not dismiss it out of hand. Banking is riven with contradiction. That such devoted apostles of laissez-faire should instinctively organise themselves into Marxist dictatorships should tell us something is not right.

The law firm panel, we submit, is another.

What looks like a case of the apex predator taming, husbanding and cultivating a subordinate species for their own ends: penning them in, fattening them a bit — in any case maximising their yield, wringing from the marrow of their tired bones a concentrated extract of value out of all proportion to their cost of carry — is nothing of the kind.

It seemed that way for wheat, too. Only no-one, as far as JC knows, ever hired the wheat to run the wheat harvesting operation.

Yet this is just what corporations have done. These are enterprises who, thirty years ago, barely had a legal department. Our history of in-house legal refers. What started out as a guy in a cardigan filling slavenburgs and authorising powers of attorney grew like topsy. What was one became five became, by the financial crisis, five hundred. Legal departments, conceived as a means of exercising operational control, began needing it themselves. In-house departments began acting like a fifth column for the law firms they were meant to be managing.

Every now and then an upstart banker asks an impertinent question:

“We have a legal department numbering twelve hundred. That is about the size of Herbert Smith. All told it costs us half a billion. Yet we are still blowing ten figures a year on external legal firms. Can someone explain this to me?”

The “law firm panel” arrangement springs from an observation — investment banks spend an awful lot of money of legal fees — coupled with that unavoidable trope of modern commerce: scale is everything.

Picture the scene: an enterprising fellow in the legal COO team has pulled 5 years’ of legal spend, totalled it, and used the AVERAGE function in Ex. cel. It generates this no-brainer:

“We spend £750m a year on external legal across 1,500 firms at an average run rate of half a million quid each firm. This is insane. If we concentrated that on say ten firms — even a hundred — we could dramatically reduce our administrative costs and leverage our scale. If we guarantee firms £50 million in billings we can push down their hourly rates, commit them to a programme of rolling secondees, have them run our annual training programme. That way we could cut our overall spend by 30% and get more legal value than we get right now.

This logic being unimpeachable, an action plan is implemented without ado. The pathological impulse to shower good money randomly over a myriad of anonymous law firms will be controlled. Order will be restored.

There will be a colossal multilateral

Now, had our fellow used a pivot chart he might have told a different story. For these firms span for 150 different jurisdictions, for a start. The mean may have been half a million, but the median spend was £10,000.

Five hundred of them billed less than £5,000 each. That third of the group account for just 2m of the total spend.